<a href="https://www.apartments.com.au/developments/broadbeach-qld-4218">Broadbeach</a> offers plenty of reasons to live vertically, but moving from a substantial family home into an apartment can expose the compromises of high-density living. Privacy, room for guests and usable living space tend to matter more when an apartment is intended as a permanent home rather than an occasional coastal base.

A typical residential floor at <a href="https://www.apartments.com.au/new-apartments/the-eveleigh-broadbeach-7-9-surf-parade-broadbeach-qld-4218">The Eveleigh</a>, on Surf Parade,&nbsp;contains just four apartments. The 94-residence development by <a href="https://www.apartments.com.au/developers/hirsch-faigen">Hirsch &amp; Faigen</a> is predominantly made up of expansive three-bedroom homes, with a limited collection of half-floor penthouses above.

Across the apartment floors, <a href="https://www.apartments.com.au/architects/rothelowman">Rothelowman</a> has used the relatively limited number of residences to give each home greater access to natural light and outlook. Living spaces extend towards full-height glazing, while a series of bay windows frame selected views across the Pacific Ocean, city and hinterland rather than treating the building edge as a continuous wall of glass.

&nbsp;

[smartcode_project:default project_id=149670 project_image_fid=360965]

“The apartment floors deliver a collection of homes that embrace controlled outlook via a series of bay windows deliberately framing moments of view,” Rothelowman Director Kim Lowman said.

From outside, those projecting forms contribute to the tower’s faceted profile. Strong horizontal and vertical elements establish its proportions, while the changing position of the sun alters the light, shadow and reflection across the façade throughout the day.

The same attention moves inside the apartments, where the material palette combines warm timber, natural stone, metallic detailing and softer curved forms. Kitchens sit within the main living zone, with stone island benches, integrated joinery and European appliances, before the living areas extend towards the glazing and the outlook.

&nbsp;

[smartcode_project:default project_id=149670 project_image_fid=360981]

Three genuine bedrooms provide room to accommodate family and guests, while two secure car spaces and storage address some of the practical considerations that can become more noticeable when moving from a larger home. Feedback from the display suite has centred on the warmth and restraint of the interiors, with buyers commenting that the residences feel like homes rather than conventional coastal apartments.

A limited collection of half-floor penthouses occupies the upper levels, increasing the scale of the living spaces and adding private balconies and elevated finishes. From this position, the outlook extends between the ocean and hinterland.

Outside the private residences, The Eveleigh separates its shared spaces between the podium and rooftop. The podium is centred on wellness, with subtropical landscaping surrounding a swimming pool and pool terrace, yoga garden, private gymnasium, sauna and hot and cold plunge facilities. Landscaped retreats and pavilions provide additional places to sit away from the main recreation areas.

&nbsp;

[smartcode_project:default project_id=149670 project_image_fid=360966]

Higher in the building, a rooftop pavilion and private dining suite sit alongside resident lounge, barbecue and outdoor dining areas, opening towards panoramic views across the ocean, city and hinterland.

“Buyers are no longer just looking for an apartment, but a lifestyle where they can relax, reset, and enjoy a balanced way of living,” Hirsch &amp; Faigen Director of Sales Matt George said.

Interest to date has come from established owner-occupiers and interstate lifestyle purchasers, including buyers planning a future move to the Gold Coast. Many are coming from larger homes and want to reduce ongoing maintenance without giving up space for family and guests, privacy, two car spaces or the ability to entertain at home.

&nbsp;

[smartcode_project:default project_id=149670 project_image_fid=360969]

Much of that daily life can also take place beyond the building without requiring a drive. Kurrawa Beach and Pratten Park are an easy walk from Surf Parade, while Pacific Fair, Oracle Boulevard, The Oasis, restaurants, cafés, entertainment and public transport are also within walking distance.

The Eveleigh is Hirsch &amp; Faigen's fourth Gold Coast development since entering the market in 2021, following The Hemingway at Palm Beach, The Emerson at Kirra and Yves at Mermaid Beach. Each of the preceding projects sold out before completion.

“Broadbeach had been on our radar throughout our time operating on the Gold Coast,” the developer said. “Following our projects in Palm Beach, Kirra and Mermaid Beach, Broadbeach represented the natural next step for the business.”

The Surf Parade site brought together proximity to the beach, protected coastal outlooks and walkability to dining, shopping and recreation. Hirsch &amp; Faigen also identified the street as an emerging premium residential address, with enough separation from Broadbeach's busier destinations to retain a quieter environment at home.

The Eveleigh is now under construction by Maxcon, with completion forecast for mid-2028. Three-bedroom residences are currently available from $2.87 million.

[smartcode_project_cta:default project_id=149670]

Joel Robinson

The Eveleigh brings house-like apartments to Broadbeach

A long-stalled Campbelltown development site is back in play, with new plans for 139 apartments set to supersede a mixed-use scheme approved almost a decade ago but never built.

The new proposal for 28 Cordeaux Street would deliver 116 market and 23 affordable apartments in a part 14-storey building, bringing a substantial new project into a Campbelltown market where new apartment supply remains limited.

Plans have been filed over the 3,092 sqm corner site at Moore-Oxley Street, around 600 metres from Campbelltown Railway Station and the city-centre retail core.

The site already carries a mixed-use residential approval dating to 2016. Doroch Architects has now been engaged on a larger replacement scheme, which is progressing as a State Significant Development Application following a Housing Delivery Authority determination in August 2025.

The apartment mix comprises 39 one-bedroom, 72 two-bedroom and 28 three-bedroom residences. Two-bedroom apartments make up just over half of the project, while three-bedroom homes account for 20 per cent.

<img alt="First look: New 139-apartment plans revive long-stalled Campbelltown city centre site" data-entity-type="file" data-entity-uuid="136dd5b9-3791-4da6-9e31-76f533f5b4de" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Campbelltown%20da2.png?VersionId=LgOSy9nwf5u.MGswBBwaGGxuX8QpHSl_" />

Of the 139 apartments, 23 will be delivered as affordable housing under the in-fill affordable housing provisions of the Housing SEPP. The affordable component represents 15 per cent of the residential gross floor area and will be managed by a registered Community Housing Provider.

Doroch has sought to break the scale of the building into two distinct elements, with a masonry podium of around four storeys establishing the street edge before the residential tower steps back above.

The corner position has shaped that approach. Cordeaux Street faces toward the commercial and civic centre, while Moore-Oxley Street leads into the lower-scale residential neighbourhood to the south, and the design verification report describes the site as "bridging the commercial core to the north and established residential areas to the south."

The podium will be expressed predominantly in face brick, while the upper levels shift to brushed and grooved concrete cladding with darker metal detailing. Recessed sections, deep balcony edges and landscaping break down the upper form, with an approximately 11.8-metre setback to the northern boundary addressing the adjoining St Peters Anglican School.

<img alt="First look: New 139-apartment plans revive long-stalled Campbelltown city centre site" data-entity-type="file" data-entity-uuid="c8b3d2d3-c561-4bfc-a5d9-a68c0c10dac1" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Campbelltown%20da1.png?VersionId=AeAEyJU02Gk2k5noUj2StziCvdQ7fW4B" />

Campbelltown has been starved of new residential developments in the last decade.

The only other notable development set to come to market this year is ALAND's Queen Square, a mixed-use precinct on over two hectares that will comprise apartments above a vibrant ground-level retail and hospitality dining precinct.

First look: New 139-apartment plans revive long-stalled Campbelltown city centre site

First Look: Sherlock Construction pitches apartments for low-rise Deception Bay

Queensland builder-developer MAYD has revealed the first look at its major North Kirra beachfront development, lodging amended plans that reduce the number of apartments and increase the proportion of larger residences.

The project is planned across a substantial 4,742 sqm amalgamated site spanning seven lots at <a href="https://www.apartments.com.au/new-apartments/2-6-pacific-parade-bilinga-qld-4225">2-6 Pacific Parade</a> and 27-33 Golden Four Drive in Bilin​ga, directly opposite Nor​th Kirra Beach.

<a href="https://www.apartments.com.au/developers/mayd-group">MAYD</a> secured the site for $32.5 million in 2025, in what was one of the Gold Coast's largest property transactions of the year.

The development will be delivered across two stages, with the first stage carrying an estimated gross realisation value of around $360 million.

The latest amendments seek to reduce the overall apartment count and shift the project further toward the owner-occupier market, with larger residences designed for buyers wanting considerably more space than traditionally offered in a beachfront apartment.

The residential mix will include townhomes, oversized two-bedroom apartments, substantial three-bedroom residences and four-bedroom homes.

MAYD has appointed Cera Stribley to lead the architecture and interiors, with the Melbourne-based design practice drawing on the beachfront setting through a series of ocean-facing terraces and heavily landscaped balconies.

Strong horizontal forms and curved balconies will define the exterior, with subtropical landscaping integrated throughout the building to soften the built form and increase the connection between the residences and the beachfront.

The project will also include an extensive collection of resident wellness and lifestyle facilities, continuing the broader shift across the Gold Coast's luxury apartment market toward larger homes supported by resort-style amenity.

<img alt="MAYD" data-entity-type="file" data-entity-uuid="d1bcbb05-e659-4b47-8bd4-1e595315e2ad" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-27%20at%202.05.03%E2%80%AFPM.png?VersionId=jj0XEud1X1DuLt7_KyElhjMdZGOXmLHP" />

MAYD Founder Todd Mould said North Kirra was increasingly appealing to buyers attracted to the more established, lower-density character of the southern Gold Coast.

"North Kirra presents one of the most compelling luxury residential opportunities currently emerging in Australia, combining absolute beachfront with the character and authenticity that buyers are increasingly seeking, and the same sense of tight-knit community that defined Burleigh and Currumbin perhaps 10 or 15 years ago," Mould said.

"With Gold Coast Airport on its doorstep, it also offers a level of accessibility that broadens its appeal across almost every market demographic."

The project comes as the southern Gold Coast continues to attract an increasing share of high-end apartment development and buyer activity.

Kirra in particular has emerged as one of the region's more tightly held beachfront markets, with its relatively low-density character, established surf and hospitality scene and proximity to Gold Coast Airport differentiating it from the higher-density markets further north.

Mould said those characteristics had informed the approach MAYD and Cera Stribley had taken to the project.

"We've worked closely with Cera Stribley to create a vision that is deeply connected to its surroundings," he said.

"Inspired by the coastline itself, the architecture has been shaped around space, privacy and resort-style living, creating a collection of homes that reflects the next generation of luxury on the southern Gold Coast."

MOTIV Managing Director Carly Cottam, who has been appointed to market the project, said buyer attention had continued to move south along the Gold Coast.

"Purchasers who may once have defaulted to Broadbeach, Main Beach or Surfers Paradise are increasingly recognising the value of a genuine beachfront location that offers lower density, strong amenity and a more established sense of community," Cottam said.

"Kirra has a powerful combination of growing demand and genuine scarcity. Beachfront supply is inherently constrained, the area remains relatively low density, and buyers are increasingly placing a premium on locations that feel established, uncrowded and authentic rather than heavily developed."

Cottam said the proximity to Gold Coast Airport was also proving increasingly important for interstate and second-home buyers.

"Being minutes from Gold Coast Airport makes it particularly compelling for interstate buyers, frequent travellers and second-home purchasers who can access an authentic coastal lifestyle almost immediately after stepping off a flight."

The acquisition takes MAYD's active development portfolio to more than $500 million, with the North Kirra project representing one of its largest undertakings to date.

MAYD is targeting an early 2027 launch.

First look at MAYD's North Kirra mixed-use precinct

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Castle Hill, the longtime hub of the Hills District, has been one of the major beneficiaries of Sydney's Metro expansion, with improved connectivity helping drive continued population growth, development and buyer demand across the Hills District.

But despite that growth, the suburb has seen relatively few major new apartment projects brought to market over the past 18 months.

Hills District developer Reve Group is looking to fill that gap with <a href="https://www.apartments.com.au/new-apartments/nova-r-ve-castle-hill-2-garthowen-crescent-castle-hill-nsw-2154">Nova Rêve</a>, a major new mixed-use precinct on the corner of Garthowen Crescent and Old Castle Hill Road, a short walk from Castle Hill Metro Station and Castle Towers.

[smartcode_project:default project_id=152737 project_image_fid=377679]

The project will comprise three residential towers alongside a hotel, restaurants, cafes and a skybar, more than 1,600 sqm of ground-floor retail and almost an acre of landscaped gardens.

It represents the largest project undertaken by Reve Group, the development arm of the Kassis family, which has been building across the Hills District for more than 30 years through Kassis Homes.

[smartcode_project:default project_id=152737 project_image_fid=377675]

Nova Rêve also represents a significant step up from the family's first apartment development, Grand Rêve, which was delivered nearby on Garthowen Crescent.

Grand Rêve introduced larger, house-like apartment layouts and premium inclusions including Wolf and Sub-Zero appliances to the Castle Hill market.

Nova Rêve takes that approach to a precinct scale, combining the residential component with hospitality, retail and substantial public and resident landscaping.

[smartcode_project:default project_id=152737 project_image_fid=377685]

Reve Group Managing Director Sam Kassis said the project reflected the family's three decades of building in the Hills, which has evolved from trophy homes on quarter-acre blocks to larger-scale apartment development.

"Grand Rêve was our first apartment project here and it showed us what this pocket of Castle Hill could be. Nova Rêve is the refinement of that idea: not just apartments, but a place the whole suburb can use," Kassis said.

A key part of that approach is the hotel, which has been designed to operate as an amenity for the wider Castle Hill community rather than solely hotel guests.

It will include restaurants, cafes, skybars and all-day dining, alongside conference and event facilities catering to business functions, community groups and private events.

At ground level, more than 1,600 sqm of shops and cafes will open onto the surrounding streets and landscaped areas.

Almost an acre of gardens designed by Land and Form Studios will run through the precinct, incorporating pathways, seating, barbecue areas and children's play spaces.

[smartcode_project:default project_id=152737 project_image_fid=377680]

Reve Group's Romio Georges said creating an active ground plane had been central to the planning of Nova Rêve.

"There are gardens with pathways, barbecues, seating and play areas, shops and cafes opening onto the street, and a hotel with restaurants and a skybar that anyone in Castle Hill can walk into," Georges said.

The project's elevated position on one of Sydney's highest ridgelines will also provide apartments with outlooks toward the Sydney skyline, surrounding parkland and the Blue Mountains.

More than 80 per cent of the apartments will occupy corner positions, with Turner responsible for both the architecture and interiors.

&nbsp;

[smartcode_project_cta:default project_id=152737]

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Nova Rêve arrives as Reve Group bets on Castle Hill's next growth phase

Mortgage Lending

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The banking regulator has sounded a warning on high household debt, highlighting the risks to the economy yet again from banks’ high exposure to the mortgage market and their lending practices.
Speaking at the Australian Securitisation Forum 2017 in Sydney, the Australian Prudential Regulation Authority Chairman Wayne Byres expressed his concern at the high level of household debt.
“It is no secret we have been actively monitoring housing lending by the Australian banking sector over the past few years. Throughout this period, our efforts have been directed at reinforcing sound lending standards in the face of strong competition that, in our view, was producing an erosion in lending quality just at a time when standards should be going in the other direction,” he said. 
Byres said banks had to do more to improve serviceability measures, particularly in relation to the "assessment of living expenses and the identification of a borrower’s existing debts".
He said high loan-to-income mortgages are more prevalent in Australia than in other similar countries, such as the UK and Ireland.
Byres pointed to an environment of "heightened risk" as the banking watchdog increases its scrutiny of lending standards of banks.
For context, Byres compared the situation with the UK and Ireland markets. 
“High LTI (loan-to-income lending) in Australia is well north of what has been permitted in other jurisdictions grappling with high house prices and low interest rates such as the UK and Ireland," Byres said.
He said APRA’s key focus will be to ensure housing borrowers are given loans they can realistically service.
“Housing loans represent over 60 per cent of total lending within the banking sector. Our goal has been to ensure APRA-regulated lenders are making sound credit decisions which are appropriate, individually and in aggregate, in the context of broader housing market and economic trends.”
Interest-only lending fell to 23 per cent of total new lending for the quarter-ended September from its earlier 40-50 percent share. Forecasts for the December quarter “suggest something similar again”, added Byres.
However, he highlighted the higher non-performing loans.
“The trend in non-performing housing loans is upward, despite a relatively benign environment for lenders. With historically low interest rates and an unemployment rate that for the past few years has drifted lower, an a priori expectation might have been for non performing housing loans to return to lower levels.”
On new non-ADI lender rules, Byres said APRA would seek to collect data from non-ADI lenders to track aggregate trends in lending activity but not supervise individual lenders. 
“‘Indeed, we are keen to distance ourselves from any perception we are responsible for the activities of any individual non-ADI lender, or for protecting their investors. To be absolutely clear, we have no intention of taking on that role … Our focus is very much on the aggregate.”
Admitting its bigger “interventionist” role in the recent past, Byres said “the net impact has clearly been positive for the financial system: as risk within the lending environment has increased, our actions have helped to strengthen lending standards to compensate”.
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jonathanchancellor-7SQnKwU6yx

APRA chief warning on living expenses in crackdown on bank lending standards

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A broken mortgage broker remuneration model and loose lending could trigger a subprime mortgage crisis, according to the the outgoing chief of the Australia’s corporate regulator.
Australian Securities and Investments Commission chairman Greg Medcraft said the situation in Australia was not comparable to the US subprime mortgage crisis, but said Australia should learn lessons from what happened in the United States.
Earlier this week, a UBS report said the amount of home loans extended based on "factually inaccurate" information is estimated to have reached $500 billion.
Medcraft said observations in the UBS report were consistent with ASIC's findings on responsible lending.
"It is amazing how people keep saying, 'It couldn't happen here'," Medcraft was cited as saying at a Reuters Newsmaker event by The Australian Financial Review.
"Thinking about the subprime crisis, [the] big issues were basically the issue of overstatement of income, understatement of expenses and overstatement of property values."
Factually incorrect mortgages on the banks' books were known as "liar loans" during the global financial crisis.
The UBS report suggested more borrowers were lying by under-representing their expenses and living costs. Borrowers were also over-stating income and assets and understating loans.
It said the level of liar loans meant the impact on the broader economy from a housing downturn was likely to be more severe than anticipated by the banks.
However, Finance Brokers Association of Australia labelled the UBS analysis "reckless" because the analysis was not based on UBS data or data from a bank or a lender.
In 2015, ASIC reviewed interest-only home loans and found 11 lenders, including the big four banks, had to change their home lending practices because they fell short of their responsible lending obligations.
The ASIC found that a majority of the lenders relied on indices to estimate the living expenses of borrowers rather than assess borrowers' actual living expenses.
In March, the regulator took Westpac to court, alleging the mortgage lender failed to properly assess whether potential borrowers could repay their home loans.
Medcraft said there could be more court cases of a similar nature in future.
He said irresponsible lending is facilitated because of the mortgage broker remuneration model which rewards brokers for securing larger loans for their clients.
"The mortgage commission is based on [the model] the larger their loans, the more you get. So logically what would you do?
"It's human behaviour. I'd do it," he said.
He said problematic aspects of the mortgage broker remuneration model included volume rebates, which are bonuses paid to brokers based on the overall volume of home loan sales.
 “Soft dollar" benefits, such as brokers' membership to loyalty programmes run by lenders which gives brokers improved service, were also a problem. 
The increased regulatory scrutiny has forced banks to tighten their lending practices in the past few months. 
In July, National Australia Bank has introduced tougher credit controls on new loans and reassessed its appetite for risk as household debt blows out to record highs.
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'Liar loans' could spark mortgage crisis, says ASIC chief Greg Medcraft 

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The mortgage rate lift is starting to be felt, driven largely by Australian mortgage lenders rationing credit to the investor segment, according to CoreLogic's Cameron Kusher.
He said the mortgage rate premium for investors appears to finally be biting into the market with weakness in both total investor credit and investor housing finance commitments.
"April 2017 lending aggregates data from the Reserve Bank (RBA) showed that investor credit rose by 0.55 percent over the month, its lowest monthly increase since August 2016," he said.
<a href="https://www.propertyobserver.com.au/images/2017/06/15/Screen%20Shot%202017-06-15%20at%2011.16.18%20am.jpg" target="_blank" style="font-size: 12.16px;">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/06/15/Screen%20Shot%202017-06-15%20at%2011.16.18%20am.jpg" alt="">
"At the same time, April 2017 housing finance data shows there was $12.6 billion in investor housing finance commitments over the month, the lowest value since September 2016.
"Since August and September of last year, standard variable mortgage rates for investors rose by 30 basis points compared to a 5 basis point increase for owner occupiers.
“There are individual states and territories in where a slowdown in mortgage demand by investors will have more of an impact, namely New South Wales and Victoria.
“Tasmania is the only state or territory where the value of lending to housing investors is currently rising however, in terms of the value of lending to investors, New South Wales and Victoria account for a substantial majority of overall lending.
“This is partly a function of higher housing costs in these two states, nevertheless, New South Wales accounted for 49.3 percent of all investor lending nationally in April 2017 with Victoria accounting for 27.4 percent.
“A pull- back in lending to investors is inherently likely to have more of an impact on the New South Wales (Sydney) and Victorian (Melbourne) housing markets.”
<a href="https://www.propertyobserver.com.au/images/2017/06/15/Screen%20Shot%202017-06-15%20at%2011.16.30%20am.jpg" target="_blank">Click to enlarge</a>
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"The potential impact on the New South Wales and Victorian housing markets of investor slowdown is further highlighted by the fact that, excluding refinances (which are also trending lower), investors accounted for 55.3 percent of mortgage demand in New South Wales in April 2017 and 46.8 percent in Victoria.
"In all other states and territories, investors accounted for less than 40 percent of mortgage demand in April 2017, with the proportion trending lower over recent months in most regions.
“We anticipate that investor demand will continue to slow over the coming months.
“We’re seeing lenders re-price mortgage rates for investors and, we are yet to see the full impact of the policy changes designed to slow the level of interest-only lending.”
<a href="https://www.propertyobserver.com.au/images/2017/06/15/Screen%20Shot%202017-06-15%20at%2011.17.05%20am.jpg" target="_blank">Click to enlarge</a>
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"With investor demand likely to fade further, this will also contribute to a further slowing of the rate of value growth in the Sydney and Melbourne housing markets where investor demand has been significantly greater than it has been elsewhere.
“A reduction in the pace of capital gains will add further disincentive to investors.
"We can assume most investors are focussed on the prospects for capital growth and relying on a negative gearing strategy to offset the cash flow losses.”
<a href="https://www.propertyobserver.com.au/images/2017/06/15/Screen%20Shot%202017-06-15%20at%2011.18.23%20am.jpg" target="_blank">Click to enlarge</a>
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Housing investment slowdown has arrived: Cameron Kusher

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Remarks at CEDA’s 2017 NSW Property Market Outlook Sydney 
Thank you for the opportunity to be part of today’s event. My remarks today come, unsurprisingly, from a prudential perspective. Property prices and yields, planning rules, the role of foreign purchasers, supply constraints, and taxation arrangements are all important elements of any discussion on property market conditions, and I’m sure the other speakers today will touch on most of those issues in some shape or form. But I’ll focus on APRA’s key objective when it comes to property: making sure that standards for property lending are prudent, particularly in an environment of heightened risk. 
Sound lending standards 
Our recent activity in relation to residential and commercial property lending has been directed at ensuring banking institutions maintain sound lending standards. Our ultimate goal is to protect bank depositors – it is, after all, ultimately their money that banks are lending. Basic banking – accepting money from depositors and lending to sound borrowers who have good prospects of repaying their loans – is what it’s all about. Of course, banking is about risk-taking and it is inevitable that not every loan will be fully repaid, but with appropriate lending standards and sufficient diversification, the risk of losses that jeopardise the financial health of a bank - and therefore the security offered to depositors - can be reduced to a significant degree. The banking system is heavily exposed to the inevitable cycles in property markets, and our goal is to seek to make sure the system can readily withstand those cycles without undue stress. 
Our mandate goes no further than that. We also have to take many influences on the property market - tax policy, interest rates, planning laws, foreign investment rules – as a given. And there are credit providers beyond APRA’s remit, so a tightening in one credit channel may just see the business flow to other providers anyway. For those reasons, there are clear limits on the influence we have. Property prices are driven by a range of local and global factors that are well beyond our control: whether prices go up or go down, we are, like King Canute, unable to hold back the tide. 
Of course, that is not to ignore the fact that one determinant of property market conditions is access to credit. We acknowledge that in influencing the price and availability of credit, we do have an impact on real activity - and this may feed through to asset prices in a range of ways. But I want to emphasise that we are not setting out to control prices. Property prices will go up and they will go down (even for Sydney residential property!). It is not our job to stop them doing either of those things. Rather, our goal is to make sure that whichever way prices are moving at any particular point in time in any particular location, prudentially-regulated lenders are alert to the property cycle and making sound lending decisions. That is the best way to safeguard bank depositors and the stability of the financial system. 
Residential property lending 
APRA has been ratcheting up the intensity of its supervision of residential property lending over the past five or so years. Initially, this involved some fairly typical supervisory measures: 
<ul>
<li>in 2011 and again in 2014, we sought assurances from the Boards of the larger lenders that they were actively monitoring their housing lending portfolios and credit standards; </li>
<li>in 2013, we commenced more detailed information collections on a range of housing loan risk metrics; </li>
<li>in 2014, we stress-tested around the largest lenders against scenarios involving a significant housing market downturn; </li>
<li>also in 2014, we issued a Prudential Practice Guide on sound risk management practices for residential mortgage lending; and  </li>
<li>we have conducted numerous hypothetical borrower exercises to assess differences in lending standards between lenders, and changes over time. </li>
</ul>
These steps are typical of the role of a prudential supervisor: focusing on the strength of the governance, risk management and financial resources supporting whatever line of business is being pursued, without being too prescriptive on how that business should be undertaken. 
But from the end of 2014, we stepped into some relatively new territory by defining specific lending benchmarks, and making clear that lenders that exceeded those benchmarks risked incurring higher capital requirements to compensate for their higher risk. In particular, we established quantitative benchmarks for investor lending growth (10 per cent), and interest rate buffers within serviceability assessments (the higher of 7 per cent, or 2 per cent over the loan product rate), as a means of reversing a decline in lending standards that competition for growth and market share had generated. 
I regard these recent measures as unusual, and not reflective of our preferred modus operandi. We came to the view, however, that the higher-than-normal prescription was warranted in the environment of high house prices, high household debt, low interest rates, low income growth and strong competitive pressures. In such an environment, it is easy for borrowers to build up debt. Unfortunately, it is much harder to pay that debt back down when the environment changes. So re-establishing a sound foundation in lending standards was a sensible investment. 
Since we introduced these measures in late 2014, investor lending has slowed and serviceability assessments have strengthened. But at the same time, housing prices and debt have got higher, official interest rates have fallen further and wage growth remains subdued. So we recently added an additional benchmark on the share of new lending that is occurring on an interest-only basis (30 per cent) to further reduce vulnerabilities in the system. 
Each of these measures has been a tactical response to evolving conditions, designed to improve the resilience of bank balance sheets in the face of forces that might otherwise weaken them. We will monitor their effectiveness over time, and can do more or less as need be. We have also flagged that, at a more strategic level, we intend to review capital requirements for mortgage lending as part of our work on establishing ‘unquestionably strong’ capital standards, as recommended by the Financial System Inquiry (FSI). 
Looking at the impact so far, I have already noted that our earlier measures have helped slow the growth in investor lending (Chart 1), and lift the quality of new lending. Serviceability tests have strengthened, although as one would expect in a diverse market there are still a range of practices, ranging from the quite conservative to the less so. Lenders subject to APRA’s oversight have increasingly eschewed higher risk business (often by reducing maximum loan -to -valuation ratios (Chart 2)), or charged a higher price for it. For example, there is now a clear price differential between lending to owner -occupiers on a principal and interest basis, and lending to investors on an interest -only basis (Chart 3) . And as a result of our most recent guidance to lenders, we expect some further tightening to occur. 
<img src="https://www.urban.com.au/images/2017/04/28/APRAChart1.png" alt="">
<img src="https://www.urban.com.au/images/2017/04/28/APRAChart2.png" alt="">
<img src="https://www.urban.com.au/images/2017/04/28/APRAChart3.png" alt="">
Looked at more broadly, the most important impact has been to reduce the competitive pressure to loosen lending standards as a means of chasing market share. We are not seeking to interfere in the ability of lenders to compete on price, service standards or other aspects of the customer experience. We do, however, want to reduce the unfortunate tendency of lenders, lulled by a long period of buoyant conditions, to compete away basic underwriting standards. 
Of course, lenders not regulated by APRA will still provide competitive tension in that area and it is likely that some business, particularly in the higher risk categories, will flow to these providers. That is why we also cautioned lenders who provide warehouse facilities to make sure that the business they are funding through these facilities was not growing at a materially faster rate than the lender’s own housing loan portfolio, and that lending standards for loans held within warehouses was not of a materially lower quality than would be consistent with industry-wide sound practices. We don’t want the risks we are seeking to dampen coming onto bank balance sheets through the back door. 
Commercial real estate lending 
For all of the current focus on residential property lending, it has been cycles in commercial real estate (CRE) that have traditionally been the cause of stress in the banking system. So we are always quite interested in trends and standards in this 5 area of lending . And tighter conditions for residential lending will also impact on lenders’ funding of residential construction portfolios – we need to be alert to the inter - relationships between the two. 
Overall, lending for commercial real estate remains a material concentration of the Australian banking system . But while commercial lending exposures of APRA - regulated lenders continue to grow in absolute terms, they have declined relative to the banking system’s capital (partly reflecting the expansion in the system’s capital base ). Exposures are now well down from pre -GFC levels as a proportion of capital, albeit much of the reduction was in the immediate post -crisis years and, more recently, the relative position has been fairly steady (Chart 4) . 
<img src="https://www.urban.com.au/images/2017/04/28/APRAChart4.png" alt=""> 
The story has been broadly similar in most sub -portfolios, with the notable exception of land and residential development exposures (Chart 5). These have grown strongly as the banking industry has funded the significant new construction activity that has been occurring, particularly in the capital cities of Australia’s eastern seaboard. At the end of 2015, these exposures were growing extremely rapidly at just on 30 per cent per annum , but have since slowed significantly as newer projects are now being funded at little more than the rate at which existing projects roll off (Chart 6). 
<img src="https://www.urban.com.au/images/2017/04/28/APRAChart5.png" alt="">
<img src="https://www.urban.com.au/images/2017/04/28/APRAChart6.png" alt="">
(As an aside, this is one reason why we opted not to reduce the 10 per cent investor lending benchmark for residential lending recently. There is a fairly large pipeline of residential construction to be absorbed over the course of 2017, and there is little to be gained from unduly constricting that at this point in time.) 
In response to the generally low interest rate environment, coupled with relatively high price growth in some parts of the commercial market , low capitalisation rates 6 and indications that underwriting standards were under competitive pressure, we undertook a thematic review of commercial property lending over 2016. We looked at the portfolio controls and underwriting standards of a number of larger domestic banks, as well as foreign bank branches which have been picking up market share and growing their commercial real estate lending well above system growth rates. 
The review found that major lenders were well aware of the need to monitor commercial property lending closely, and the need to stay attuned to current and prospective market conditions. But the review also found clear evidence of an erosion of standards due to competitive pressures - for example, of lenders justifying a particular underwriting decision not on their own risk appetite and policies, but based on what they understood to be the criteria being applied by a competitor. We were also keen to see genuine scrutiny and challenge that aspirations of growth in commercial property lending were achievable, given the position in the credit cycle, without compromising the quality of lending. This was often being hampered by inadequate data, poor monitoring and incomplete portfolio controls. Lenders have been tasked to improve their capabilities in this regard. 
Given the more heterogeneous nature of commercial property lending, it is more difficult to implement the sorts of benchmarks that we have applied to residential lending. But that should not be read to imply we have any less interest in the quality of commercial property lending. Our workplan certainly has further investigation of commercial property lending standards in 2017, and we will keep the need for additional guidance material under consideration. 
Concluding remarks 
So to sum up, property exposures – both residential and commercial – will remain a key area of focus for APRA for the foreseeable future. Sound lending standards are vital for the stability and safety of the Australian banking system, and given the high proportion of both residential mortgage and commercial property lending in loan portfolios, there will be no let-up in the intensity of APRA’s scrutiny in the foreseeable future. But despite the fact the merit of our actions are often assessed based on their expected impact on prices, that is not our goal. Prudence (not prices) is our catch cry: our objective is to make ensure that, whatever the next stage of the property cycle may bring, the balance sheet of the banking system is resilient to it.
Wayne Byres is Chairman of the Australian Prudential Regulation Authority
 
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Prudential perspectives on the property market: Wayne Byres

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APRA is reviewing property lending practices of banks, and could ask them to raise more capital because of too much concentration into the housing sector, which is being seen as a risk now.
Wayne Byres, the chairman of the Australian Prudential Regulation Authority, said the watchdog needed to resolve the way the banks' allocate capital to home loans.
"If we are going to put an increasing number of eggs into a single basket, we'd better make sure that basket is an unquestionably strong one," Byres said at The Australian Financial Review's Banking &amp; Wealth Summit.
The exposure of Australia's banks to home loans against total loans has grown to between 50 and 60 percent from between 10 and 30 percent in 1989, accelerating after the financial crisis as a shift to lower risk mortgage lending helped banks increase their capital ratios.
Byres said the "bigger issue" was how to address the build-up of housing debt in the system, potentially by requiring the banks to hold more capital against their home loan books, Fairfax Media reported.
His comments come within days of the APRA asking banks to cap interest-only loans at 30 percent of new residential mortgage loans. Interest-only lending represents nearly 40 percent of the stock of residential mortgage lending by banks, which APRA has called "quite high" by global standards.
CLSA analyst Brian Johnson said on the sidelines of the Summit that the big four had a $20 billion shortfall of capital at December 2016 and that for every additional 10 per cent increase in risk weights on investor lending, the capital required increased by a further $5.2 billion.
Australia's bank executives reacted by pleading for time to adjust to potential capital increases.
"There's probably some adjustment but it's not something we wouldn't be able to do over a reasonable amount of time," Westpac chief executive of consumer banking George Frazis told the Summit.
A move to force banks to increase the amount of capital they must hold against their mortgage books would hit their profit margins if they were unable to sufficiently reprice home loans.
Higher capital requirements could also slow mortgage lending or provide more of an incentive for banks to lend to other parts of the economy.
The examination of housing capital will be part of APRA's wider push to make Australia's banks "unquestionably strong" in terms of their capital levels, a target set for them by the 2014 Financial System Inquiry that required them to be among the top quartile of highly capitalised banks globally.
APRA will release its review of the sector's strength in the middle of the year, ahead of any global agreement on capital levels under the Basel regulatory framework.
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APRA reviewing size of banks' home loan inventory as it fears too much in one basket

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The Australian Prudential Regulation Authority is trying to curb non-bank lending to investors as part of its latest moves to cool down the hot property market, says the country's biggest non-bank lender, Firstmac.
The "invisible hand of APRA" is trying to rein in non-banks to property investors, according to Firstmac CEO Kim Cannon and CFO James Austin, during an interview with The Australian Financial Review. The Firstmac executives were referring to APRA's comments on "warehouse facilities" provided by banks to other lenders.
APRA said last week it had advised authorised deposit-taking institutions (ADIs) that it was “monitoring the growth in warehouse facilities provided by ADIs to other lenders”. 
These facilities allow lenders to build a portfolio of loans that would eventually be securitised. Non-banks such as Firstmac, Liberty Financial, Pepper and some of the smaller use this window to write home loans, which they then securitise and sell to overseas investors.
“APRA would be concerned if these warehouse facilities were growing at a materially faster rate than an ADI’s own housing loan portfolio, or if lending standards for loans held within warehouses are of a materially lower quality than would be consistent with industry-wide sound practices,” APRA Chairman Wayne Byres had said.
The prudential regulator had announced new bank lending limits on interest-only loans last week. The regulator said interest-only loans must be restricted to 30 per cent of new residential mortgage loans.
Cannon and Austin said these remarks were APRA's attempt to cool down parts of the lending market it does not regulate, Fairfax Media reported.
But Cannon, a 35-year non-bank lending veteran, said Firstmac was more conservative in its lending than the major banks. 
"We have to be. Every dollar we lose comes out of my back pocket," he said.
Firstmac, which is reportedly seeking a banking licence, does not lend above loan-to-value ratios of 80 percent and quit lending to high-rise apartment investors two years before the major banks pulled back.
It writes a similar proportion of interest-only loans as the major banks – about 40 percent, according to APRA.
"It's crazy times, but we're not doing five or 10 percent deposits," said Cannon.
Firstmac has restricted its lending, especially in Sydney and Melbourne, which Cannon called as “extended” housing market. 
He played down concerns about a housing crash.
"There's very little speculation in the Australian housing market. People buy property here for their kids or as [long-term] investments. Also, Australians are among the highest quality borrowers in the world," he said.
Last year, Australian lenders issued about $18 billion of residential mortgage-backed securities (RMBS), compared with over $30 billion prior to the global financial crisis.
Firstmac manages an $8 billion home loan portfolio and has issued more than $16 billion in RMBS bonds since 2003.
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“Invisible hand of APRA” trying to rein in non-banks: Firstmac

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The Australian Prudential Regulation Authority (APRA) has updated its expectations for sound residential mortgage lending practices for authorised deposit-taking institutions (ADIs) following consultation with industry and other stakeholders.
APRA released for consultation a revised draft of Prudential Practice Guide APG 223 Residential Mortgage Lending in October 2016 to incorporate measures previously announced by APRA in 2014 or communicated to ADIs since that time.
The revisions to APG 223 are designed to ensure that the sound lending practices that have been implemented across the industry since late 2014 are maintained and reinforced.
As a result of the consultation, APRA has made a small number of refinements to the prudential practice guide, which are explained in a letter to ADIs.
APRA does not expect these refinements to result in material changes to existing lending practices across the industry as a whole.
APRA is continuing to maintain its close monitoring and supervision of residential mortgage lending practices, including growth in investor lending, as part of its broader mandate to build resilience in the financial sector and promote financial system stability.
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j.ballantyne1990-6AQqhLzZaK

APRA updates guidance on residential mortgage lending

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Residential mortgage lending constitutes the largest credit exposure in the Australian banking system and, for many ADIs, well over half their total credit exposures.
This concentration of exposure necessitates APRA’s close scrutiny of ADIs’ lending practices.
In November 2014, APRA released Prudential Practice Guide APG 223 Residential Mortgage Lending (APG 223) to provide guidance to ADIs on sound risk management practices for residential mortgage lending.
APG 223 outlines prudent practices in areas, such as sound loan origination criteria, appropriate security valuation methods, the management of problem loans, and monitoring relevant risk data. APRA is currently consulting on updates to APG 223, as outlined on the APRA website.
ADIs currently report residential mortgage lending data to APRA on reporting forms under the Financial Sector (Collection of Data) Act 2001 (FSCOD Act), and in response to ad hoc information requests pursuant to APRA’s general powers under the APRA Act.
One key source of information is Reporting Standard ARS 320.8 Housing Loan Reconciliation (ARS 320.8), made under the FSCOD Act.
This reporting standard requires ADIs with more than $1 billion in residential term loans to report 99 data items each quarter on Reporting Form ARF 320.8 Housing Loan Reconciliation (ARF 320.8), using the Direct-to-APRA (D2A) reporting software each quarter.
ADIs must report information on ARF 320.8 on their housing lending activity, including information on loan purpose (either owner-occupied or investment loans), balances of existing loans, new
loan approvals and features of loans. ARF 320.8 collects this information on loans on the domestic books for banks and licensed books for non-bank ADIs.
ARF 320.8 was introduced in 2008 and has not been updated since then. There is now a significant gap in APRA’s ability to monitor the credit risk and lending practices of ADIs. Only 31 of the 109 locally incorporated ADIs are required to submit ARF 320.8.
Many of the loan characteristics that are factors for assessing credit risk (as outlined in APG 223) are not covered, such as portfolio loan-to-valuation ratio LVR breakdowns, loan performance, security type and borrower serviceability.
ADIs report loans only on a domestic books basis and exclude certain types of borrowers under ARS 320.8, such as non-resident households, household trusts and self-managed superannuation funds (SMSFs), meaning some relevant lending activity is not captured.
Furthermore, some of the data items reported on ARF 320.8 are no longer relevant to APRA’s supervisory needs.
These information gaps in the D2A reporting mean APRA must request additional information on residential mortgage lending to undertake meaningful analysis for individual ADIs and the ADI industry as a whole.
The additional data received are not subject to APRA’s formal data quality assurance processes, they are not stored in APRA’s centralised data warehouse and may not be of publishable quality.
These ad hoc requests can impose an increased regulatory burden on entities. Due to their variable scope and requirements, it can be difficult for ADIs to allocate resources and provide ongoing quality assurance.
Some ADIs have informally expressed a preference for reporting requirements to be collected through D2A wherever possible, and for all reporting requirements to include a clear statement of purpose and instructions.
ARF 320.8 is due 20 business days after each reference quarter. The Reserve Bank of Australia (RBA) also uses data reported on ARF 320.8 in the development of policies to promote financial stability, and to monitor the transmission of monetary policy.
ADIs currently report information on the balance on loans that are impaired or past-due in Reporting Form ARF 220.0 Impaired Facilities. This does not include any loan characteristics other than a split between owner-occupied and investor.
ADIs using the Standardised Approach to calculating credit risk capital requirements also report some information about residential mortgage lending on Reporting Form ARF 112.1A Standardised credit risk - On-balance sheet assets, ARF 112.2A Standardised credit risk - Off-balance sheet exposures, while ADIs using the internal- ratings based (IRB) approach report some information on and ARF 113.3A IRB Retail – Residential mortgages. Only limited detail on characteristics of the loans is reported on these forms.
To better enable APRA’s supervisory monitoring and oversight of residential mortgage lending, and reduce the reliance on ad hoc information requests, APRA proposes to introduce a new reporting standard under the FSCOD Act, Reporting Standard ARS 223.0 Residential Mortgage Lending (ARS 223), and a new form, Reporting Form ARF 223.0 Residential Mortgage Lending (ARF 223.0).
These changes will enable APRA to maintain its supervisory intensity of residential mortgage lending and address emerging risks, while removing some unnecessary reporting burden on ADIs.
All locally incorporated ADIs will be subject to ARS 223.0 and required to submit ARF 223.0, 28 calendar days after the end of each calendar quarter.
While smaller ADIs are currently not required to submit ARF 320.8, residential mortgage portfolios typically make up the majority of their balance sheet.
Comprehensive supervisory monitoring of the credit risk of these ADIs is therefore dependent on obtaining information about their residential mortgage lending.
APRA expects that much of this information will already be available by ADIs for their own internal monitoring purposes.
ARF 223.0 will collect information on both the portfolio stock and the new lending activity each quarter. ADIs with a Level 2 group will need to complete ARF 223.0 on a Level 2 basis, and other ADIs on a Level 1 basis.
Depending on their level of residential mortgage lending activity in Australia, branches of foreign banks may also be required to submit ARF 223.0 each quarter, as directed by APRA.
The proposed reporting standard, form and reporting instructions are available on the APRA website.
In order to accurately assess the risk profile of the residential mortgage loan portfolio of an ADI or the industry as a whole, APRA needs to have relatively detailed information on residential mortgage loan portfolios.
ADIs currently report outstanding loan balances to households and some loan characteristics on ARF 320.8, split by purpose of the loan. ADIs currently report the balance on impaired or past-due loans in ARF 220.0, split between owner-occupied and investor loans with no further detail.
The proposed ARF 223.0 will capture loans to households as well as borrowers which have similar risk profiles to households, such as loans to family trusts and SMSFs and to non-residents.
ADIs will be required to report new information including: facility limits; a more detailed breakdown by LVRs; loan vintage; loans subject to lenders mortgage insurance; loans secured by property overseas; and loans secured by a unit or apartment.
The definitions used in ARF 223.0 have been streamlined to better align with ADIs’ own internal information management systems.
For example, the definitions of an owner-occupied loan and an investor loan have been updated. These changes should make it easier to report and therefore reduce the ongoing reporting burden.
More detail about problem loans will be required than is currently reported on ARF 220.0.
ADIs will be required to report past-due loans according to risk characteristics (such as loan type, origination channel and LVR), mortgage loans with hardship arrangements, mortgagee in possession loans, loans less than 90 days past due and new non- performing loans in the quarter.
In addition to portfolio metrics, information on the risk profile of new loans is essential for analysis of ADIs’ credit risk.
ADIs currently report limited information on new loan approvals on ARF 320.8, including breakdowns on purpose, some loan features and LVRs. Revolving credit is not captured on ARF 320.8.
ARF 223.0 will require ADIs to report loans originated during the quarter, rather than loans approved, as this is a better and more reliable measure of loans affecting an ADI’s risk profile.
Details on new loan originated to trusts operated by households, such as family trusts and SMSFs, will be included in reporting, as well as loans to non-residents. Originations of revolving credit facilities will also be reported.
ADIs will be required to report more detailed data on loans originated during the quarter than is required on ARF 320.8, including information on borrowers, loan-to-income ratios, collateral type and location and a more granular breakdown by LVR.
Most of the existing detail on loan approvals reported on ARF 320.8 will continue to be reported for originations on ARF 223.0, such as loan purpose and loan features.
ADIs will also be required to report information on the average variable interest rate and average loan serviceability assessment rate of loans originated during the quarter. These data will be used to analyse changes in serviceability parameters.
APRA’s needs for regular statistics on mortgage lending activity will be largely met by the proposed ARF 223.0.
However, the RBA relies on the information reported on ARF 320.8 to perform its role.
The RBA will become the primary user of ARF 320.8 and has requested that APRA continue to collect the form on its behalf from ADIs with over $1 billion of residential mortgage term loans each quarter.
The RBA is currently reviewing ARF 320.8 and intends to consult ADIs on revised reporting requirements in late-2016. Both APRA and the RBA are working together to minimise reporting burden by limiting the overlap between collections, and by streamlining concepts and definitions.
After considering the feedback received in response to the discussion paper, APRA expects to issue a response paper and finalise the content and format of ARS 223.0 in the first half of 2017. The new reporting requirements would commence for the quarter ending 31 December 2017.
To improve the quality of regulation, the Australian Government requires all proposals to undergo a preliminary assessment to establish whether it is likely that there will be business compliance costs. In order to perform a comprehensive cost-benefit analysis, APRA welcomes information from interested parties.
As part of the consultation process, APRA requests respondents to provide an assessment of the impact of the proposed changes and, specifically, the marginal compliance costs ADIs are likely to face.
Given that APRA’s proposed reporting requirements may impose some compliance costs, respondents may also indicate whether there are any other requirements relating to ADI reporting that should be improved or removed to reduce compliance costs. In doing so, please explain what they are and why they need to be improved or removed.
APRA also requests feedback on the proposed reporting requirements, the extension of reporting on residential mortgage lending to ADIs with less than $1 billion in residential mortgage loans, and the ability of ADIs’ data source systems to align to the concepts and definitions in the proposed data requirements.
APRA welcomes any suggestions for changes to definitions that will improve data quality and reduce reporting burden.
Specifically, APRA seeks feedback on the proposed definitions in the reporting instructions for owner-occupied loans, investor loans, household trusts and newly originated loans.
The proposed reporting requirements, like all reporting requirements under the FSCOD Act, will utilise XBRL (eXtensible Business Reporting Language) and the Standard Business Reporting (SBR) taxonomy.
ADIs that use XBRL and the SBR taxonomy to map or tag their financial information can streamline their reporting processes and reduce the manual intervention required.
There are several concepts on the proposed form that overlap those of other APRA reporting, allowing for the re-use of existing SBR taxonomy tagging on source data systems.
APRA requests feedback on the cost incurred in responding to past information requests regarding residential mortgage lending.
APRA expects the introduction of ARF 223.0 to reduce the frequency and detail of these requests for the majority of ADIs.
Feedback on compliance costs under the proposed changes can be provided to APRA using the template for costings available on the APRA website <a href="https://www.apra.gov.au/adi/Documents/Template-for-%20cost-savings-2015.xlsx" target="_blank">here</a>
The template is designed to capture the relevant costs in a structured way, including a separate assessment of upfront costs and ongoing costs.
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Property 101: APRA's residential mortgage lending reporting requirements

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The Australian Prudential Regulation Authority (APRA) has released for consultation revisions to Prudential Practice Guide APG 223 Residential mortgage lending to incorporate measures either announced by APRA in December 2014 or communicated to authorised deposit-taking institutions (ADIs) since.
APRA’s proposal to increase the monitoring of risk and lending practices should ensure the highest professional standards and independence of the valuation process for residential mortgages, according to the leading valuation professional bodies, the Australian Property Institute (API) and the Royal Institution of Chartered Surveyors (RICS).
The market expects that valuations are reliable, independent and authoritative. 
Both the API and RICS accredit professionals and require them to follow International Valuation Standards in the preparation of valuation advice to Authorised Deposit-taking Institutes (ADIs). 
We call on APRA to ensure that any changes made to valuation practices are not inconsistent with international standards.
The two organisations share a strong preference for a full on-site valuation, which includes a physical inspection and all relevant enquiries being undertaken. 
A physical inspection is considered a must and should be sufficiently comprehensive to enable valuer to complete their report in accordance with accepted valuation practice.
Lesser forms of value assessments such as a ‘drive-by’ which has an external inspection only and with very limited enquiries or a ‘Desktop Assessment’ which has no physical inspection, no formal enquiries and limited reporting carry greater risk and should only be adopted in very low-risk circumstances.
We also support the proposal confirming that the ADI’s risk management teams, rather than the procurement or panel management staff, should make determinations regarding risk management and the appointment of suitably qualified, professional and accredited valuers.
The API and RICS work closely with the finance industry, which requires that their Panels are comprised of API and RICS qualified valuer members.
The API and RICS are supportive of all measures, which enshrine the independence of the valuer in the residential mortgage process and the valuation process generally. 
Additionally, sound risk management practices by the banks will assist in ensuring that valuations are undertaken in accordance with both International and Australian valuation standards, as prescribed by both the API and RICS. 
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Property 101: APRA revisions to Prudential Practice Guide APG 223 Residential mortgage lending

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At the end of 2014, the Australian Prudential Regulation Authority (APRA) wrote to mortgage lenders reinforcing what they saw as sound mortgage lending practices. 
The key points from that letter were that serviceability policy limits should be based on mortgage rates at least 2 percent above the product loan rate with a minimum floor assessment of 7 percent. 
The second point was that APRA was going to impose a speed limit on investment credit growth to lenders of 10 percent per annum. It is important to note investment credit refers to total outstanding mortgages not new lending.
The impact of these policies was likely to be that as interest rates fell, more buyers weren’t encouraged into the market because mortgages were being granted based on the ability to repay a mortgage at 7 percent interest which was well above standard rates at that time.  The other impact was that the 10% cap on investor housing credit growth would slow demand from the investment segment as there was less new lending to go around.
While the serviceability limits mean that new first time buyers are unlikely to come into the market as interest rates fall, it does nothing to discourage current owners from buying investment properties or upgrading homes.  Given that the vast majority of home loans are on a variable rate, interest rate cuts have an almost immediate impact on household budgets. 
While the serviceability limits won’t result in marginal purchasers entering the market, as interest rates have come down it appears that home owners that weren’t previously considering buying an investment property or upgrading have come out of the woodwork and decided to purchase.
<a href="/images/2016/09/21/Chart-1-1-580x176.jpg" target="_blank">Click to enlarge</a>
 <img src="/images/2016/09/21/Chart-1-1-580x176.jpg" alt="">
It is somewhat difficult to gauge exactly how effective the serviceability changes have been, but the 10% cap on investor housing credit led to a significant decline in growth in lending to that market segment.  Shortly following the implementation of the investor lending cap we also saw lenders place an interest rate premium on investment mortgages.  This muddied the waters somewhat because a lot of mortgages which were previously designated as investment mortgages were reclassified as owner occupier mortgages. 
Nevertheless, annual investor housing credit growth peaked at 10.8 percent in May 2015 according to Reserve Bank data and the latest data shows that it has slowed to growth of 4.8% over the year to July 2016.  Investor housing credit growth has slowed dramatically since its recent peak following these curbs and over the past year has increased at its slowest annual pace since November 2009.
<a href="/images/2016/09/21/Chart-2-1-580x210.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/09/21/Chart-2-1-580x210.jpg" alt="">
Housing finance data which tracks new lending, has showed a bounce in new lending to investors over the three months to July 2016.  Over that period, the monthly value of investment lending has increased by 9.2 percent from $10.8 billion in April 2016 to $11.8 billion in July 2016, new lending to investors is at its highest level since August 2015.  With investor housing credit growth well below 10 percent per annum, it is clear that lenders have scope to now offer more lending to the investment segment and clearly there are investors grabbing that opportunity.  
But why is this the case when you have a record supply of new housing under construction, record low rental yields and a historically weak rental market? We are about to delve into some possible reasons why, for some investors, housing investment still makes sense however, investors looking to purchase residential properties should be aware of the potential risks on the horizon.
Capital growth
<a href="/images/2016/09/21/Chart-3-1-580x211.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/09/21/Chart-3-1-580x211.jpg" alt="">
Since the current growth phase commenced in June 2012, combined capital city home values have increased by 39.9%.  As the above chart shows, the growth has been very uneven with Sydney and Melbourne leading the way in terms of value growth and rises relatively moderate elsewhere.  After such a long growth phase, the question must be asked as to how much longer the growth can continue for in Sydney and Melbourne, particularly considering the affordably obstacles that are becoming more pronounced and the diminishing yield profile caused by the fact that dwelling values are rising at a much faster pace than rents.
Housing supply
<a href="/images/2016/09/21/Chart-4-1-580x197.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/09/21/Chart-4-1-580x197.jpg" alt="">
The supply of new housing under construction is at a record-high with an historic high level of units under construction.  The 2011 national Census showed that units were much more likely to be occupied by renters than houses.  At that time, and across homes occupied on Census night, 21.8 percent of houses and 57.8% of units were occupied by renters. 
Of course housing choices are likely to have shifted somewhat since that time but the fact is likely to remain that units are much more likely to end up as rental accommodation than houses are.  As a result a large proportion of these units recently built and under construction will end up as rental accommodation.  In many cities we are also already seeing a significant difference in the rate of growth for houses as opposed to units.
<a href="/images/2016/09/21/Chart-5-1-580x212.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/09/21/Chart-5-1-580x212.jpg" alt="">
Rental markets are showing the weakest growth conditions on record, in fact, capital city rental rates are -0.5 percent lower over the past year.  In the two cities where the highest level of investment activity is occurring, Sydney and Melbourne, rents are unchanged in Sydney and 2.4 percent higher in Melbourne.  For units specifically, rental rates are 0.7 percent higher over the year across the combined capital cities with rental rates 1.8 percent higher for Sydney units and 1.3 percent higher for Melbourne units.
There is a large supply of housing stock that is going to be added to the market over the coming year(s) in these cities and others.  Most of the supply is in the form of units, which as shown are more likely to be rental properties.  Subsequently it seems as if landlords are set to find it more difficult to keep renters and may have to reduce rents in order to keep their properties tenanted over the coming years.  Higher vacancy rates may be felt by those landlords who own units that are in need of repair or refurbishment as tenants look for higher quality or new rental accommodation that may be more comfortable at a similar rental rate.
Rental returns
<a href="/images/2016/09/21/Chart-6-580x209.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/09/21/Chart-6-580x209.jpg" alt="">
Rental yields are expressed as gross figures so the net returns are likely to be much lower than the headline figure.  The gross rental yield has been forced lower over recent years due to little rental growth (and falls in some areas) coupled with comparatively high levels of home value growth. As a result, at the end of August 2016 the combined capital cities gross rental yield was recorded at an historic low 3.3 percent with figures of 3.0 percent in Sydney and 2.9 percent in Melbourne.  
A couple of things to note about the yield figures; firstly they assume that a property is occupied for 100 percent of the year and secondly they are based off current values, most investors would not borrow 100 percent of the loan value for an investment property.  Given these two points, lower than 100 percent occupancy would reduce the yield however, borrowing less than 100% of the property’s value would increase the yield.
As pointed out earlier, units are much more likely than houses to be used for rental accommodation and there is a record pipeline of unit stock under construction.  Gross rental yields for units specifically are higher than those for houses and recorded at 4.1 percent for combined capital city units, 3.9 percent in Sydney and 4.0% in Melbourne.  Each of these figures are at historic lows and have trended lower over recent years.  Nevertheless, when you factor in a level of equity used to purchase investment properties the returns are still far superior to most other asset classes.
Total returns
Click to enlarge
<img src="/images/2016/09/21/Chart-7-580x208.jpg" alt="">
When you factor in rental returns and capital growth, the total returns from residential property remain attractive.  Over the past year, total gross returns across the combined capital cities have been recorded at 10.7% with each capital city other than Perth and Darwin recording total returns in excess of 7.0% over the past year. Since home values ended their most recent declines in May 2012, combined capital city total returns have been recorded at 62.7% and no capital city has recorded returns of less than 25% over the period
Other asset classes
A major reason why investors remain attracted to residential property is due to the fact that with low interest rates and low economic growth internationally, returns have reduced.  Based on the most recent end of month data, 10 year Australian Government bonds were yielding 1.88 percent, 1 year term deposit rates were 2.65 percent and total returns from the ASX 200 were 9.3 percent.  The safe investment classes of bonds and term deposits are providing extremely low returns.  At the same time total returns from equities have been much stronger however, equities are a more volatile asset class than housing.
While the housing market has provided relatively strong investment returns over recent years and may continue to provide comparatively strong returns over the coming years, there are certainly some headwinds that investors need to be aware of.  Keep in mind too that the purchase cost of a residential property is significantly greater than investing in other asset classes.  The additions to housing supply underway and the weakening rental market should provide a level of caution for investors. 
Given the cost of housing and the looming challenges we would expect that although there is likely to be some further uplift in investment demand it is unlikely to result in growth in investor credit to head back towards the 10%pa speed limit.  Investors will also need to be much more selective around which properties they choose given achieving strong returns are seemingly going to be more difficult to achieve over the coming years given the looming headwinds described within.
Cameron Kusher is research analyst for CoreLogic. You can contact him <a href="https://blog.corelogic.com.au/about/">here</a>.
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